Activity based costing and full cost absorption system
Not what you're looking for?
Compare Activity based costing against the more traditional methods of management accounting such as the full cost absorption system.
Just looking for some direct comparisons between them. which is used more in the business world at the moment?
Purchase this Solution
Solution Preview
Here is some info on ABC and full cost absorption:
Activity-based costing was first clearly defined in 1987 by Robert Kaplan and Robin Cooper as a chapter in their book Accounting and Management: A Field Study Perspective (Harvard Business School Press 1987 ISBN: 0875841864). They initially focused on manufacturing industry where increasing technology and productivity improvements have reduced the relative proportion of the direct costs of labor and materials, but have increased relative proportion of indirect costs. For example increased automation has reduced labor, which is a direct cost, but has increased depreciation, which is an indirect cost.
Traditionally cost accountants had arbitrarily added a broad percentage onto the direct costs to allow for the indirect costs. However as the percentages of overhead costs had risen, this technique became increasing inaccurate because the indirect costs were not caused equally by all the products. For example one product might take more time in one expensive machine than another product, but since the amount of direct labor and materials might the same, the additional cost for the use of the machine would not be recognised when the same broad 'on-cost' percentage is added ...
Purchase this Solution
Free BrainMass Quizzes
Basic Social Media Concepts
The quiz will test your knowledge on basic social media concepts.
Marketing Management Philosophies Quiz
A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.
Lean your Process
This quiz will help you understand the basic concepts of Lean.
Organizational Behavior (OB)
The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.
Business Ethics Awareness Strategy
This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.